Canada Catches America’s Cold – PMI Plunges To 4 Year Lows
As goes America, so goes Canada it seems. Following the collapse in both Manufacturing and Services survey data in the US, Canada’s PMI just collapsed most since Feb 2016, back into contraction for the first time since March 2015.
From a 12-month high of 60.6in August, Ivey PMI collapsed to a 4-year lows of 48.7…
Source: Bloomberg
Under the hood things are mixed (but hurting in the most important areas)
Ivey employment index decreased to 49.6 in September from 52.7 in prior month
Ivey inventory index decreased to 50.5 in September from 54.8 in prior month
Ivey supplier index increased to 50.2 in September from 49.9 in prior month
Ivey prices index increased to 56.9 in September from 51.3 in prior month
Jeffrey Epstein Made $200 Million After His Pedophilia Became Public Knowledge
Three years after Jeffrey Epstein served nearly 13 months in prison in a sweetheart plea deal, the self-admitted pedophile was able to rake in over $200 million in revenues through a DNA data-mining company he established in 2012, according to the New York Times.
His start-up, Southern Trust, reported more than $200 million in revenues over the next five years, according to a review of previously unreported financial statements filed in the Virgin Islands.
Despite a name that calls to mind a financial services firm, the fledgling company with a handful of employees said it was developing a DNA data-mining service. Southern Trust was trying to gauge customers’ predisposition to cancer by “basically organizing mathematical algorithms,” Mr. Epstein told Virgin Islands officials as he sought a lucrative tax break in 2012. –New York Times
According to documents for Southern Trust and Epstein’s earlier business, Financial Trust, the latter “peaked at the end of 2004, when it reported $563 million in assets and net income of $108 million.”Southern Trust, meanwhile, reported $175 million in retained earnings in 2017.
What isn’t made clear from the documents is where all that money came from, or as the Times notes: “Nor do they offer an explanation for why customers would hand over money to a man who had apparently switched from financial services to DNA research.“
Perhaps rumors that Epstein was running an international blackmail scheme involving sex-trafficked minors aren’t so far fetched.
In 2012, Mr. Epstein asked the Virgin Islands Economic Development Authority to note that Financial Trust no longer managed money, so it would not have to register with federal securities regulators as required under the Dodd-Frank Act. Later that year, Financial Trust was replaced by Southern Trust, which Mr. Epstein told territorial officials would still maintain a “financial arm.”
The single-page unaudited financial statements for both companies — obtained through a public-records lawsuit against the territory’s Division of Corporations and Trademarks — are littered with curious line items. –New York Times
The Financial Trust documents reveal that the company had less than twelve employees, with investment expenses varying from $1.3 million in 2000 to $16 million in 2004, and $42 million in 2005. The year Epstein was charged in Florida for soliciting prostitution from a minor, Financial Trust funneled $117 million into an unnamed subsidiary with an unknown purpose. It was then transferred to Southern Trust in 2013 – and greaw to over half the company’s $391 million in assets by the end of 2017. Moreover, Southern Trust took out a $30.5 million loan that year of unknown origin.
On this sheet, Southern Trust reported net income of more than $57 million in 2013, its first full year in business.
Meanwhile, Epstein “paid himself handsomely” according to the report – pocketing $400 million in dividends and other payments since 1999, the first full year after he shifted his operations from New York to the Virgin Islands.
Epstein was arrested in July after having been charged with sex-trafficking underage girls. The criminal case against him came to an immediate halt after he was found dead in his Manhattan jail cell. While it was ruled a suicide, an unfortunate camera malfunction and the fact that his cellmate was transferred out shortly before the incident means that there are no witnesses.
Two days before he died, Epstein signed a will which placed an estimated $500 million into a trust, listing Darren K. Indyke and Richard D. Kahn, two longtime associates, as executors.
The financial statements and accompanying documents reviewed by The Times were signed at various times by Mr. Indyke, a lawyer who incorporated dozens of Mr. Epstein’s companies, and Mr. Kahn, a New York accountant. Mr. Indyke served as president of Financial Trust for two years, which included the period that Mr. Epstein was serving a prison sentence in Florida after his 2008 guilty plea. –New York Times
According to documents obtained from the Virgin Islands Economic Development Authority, Epstein was rarely questioned on his dealings – granting him massive tax exemptions which allowed him to pay as little as 10% effective corporate tax rate. The breaks are typically granted to companies which agree to minimum hiring requirements, and at least a $100,000 investment in an industry which advances the region’s “economic well-being.” Southern Trust was one of 71 such companies receiving this type of benefit.
By the end of 2017, Southern Trust reported having $175 million in leftover profits.
“Rich people have tried to make it their residence and do business there,” said Washington lawyer Jack Blum, who has led corruption investigations for several Senate committees. “The idea was to keep it all out of the hands of the I.R.S.“
Mr. Epstein set up shop in the Virgin Islands in 1998, calling himself a “financial doctor” who had decided to settle there after “vacationing up and down the world,” according to a transcript of a hearing the next year as he sought tax incentives that were ultimately granted. During his extensive remarks — an official interrupted Mr. Epstein’s soliloquy at one point to remind him he had only 15 minutes to make a presentation — he discussed working at Bear Stearns and opined about that “electronic mail” was rendering the fax machine obsolete.
He also boasted about managing money for Leslie H. Wexner, the longtime chief executive of the company that runs Victoria’s Secret, who recently said Mr. Epstein had misappropriated large sums of money from him.
The end of their association is evident in the income statements of Financial Trust. The company reported fee income — money charged to clients for services, rather than gains from investments — of $66 million in 2006. In 2007, the year that Mr. Wexner said he had cut ties with Mr. Epstein, Financial Trust’s fee income was just shy of $4 million. In 2008, it was $100,000.
Until and unless more comes to light, this may be the best glimpse we will get into Epstein’s complicated finances. As they say, dead men tell no tales.
“Better a decade of inflation that a cycle of decay.. ”
A few years ago I was on Bloomberg one morning, and said something like stocks looked overly expensive and should be due a correction if it wasn’t for the support they were getting from company buybacks and the low relative yields on bonds. The programme host asked me if I meant stocks were going to collapse, so I joshed with her – confidently predicting some random date like October 12th as the day the global stock market would tumble of out bed. I spun some yarn about my high degree of confidence that 10.30 am that day would see a crash nailed on. I figured anyone sensible watching would see I was joshing. I should have given the host a verbal sarcasm warning – I think the newscaster took me seriously…. So now I try to hedge a bit when its blindingly obvious we are poised on the edge of a precipice about to take a big step forward…
We are in the middle of a deeply unconvincing market, but this time it’s not stocks that scare me.
Yesterday’s stock market action turned out mildly positive on the back of less bad than expected numbers. The big event today will be the US Non-Farm Payrolls data – expected around 160k. Yet, despite a continuing long-term strong employment trend, rising wages and no real tension, the market buys the notion a global recession is 30-40% likely, but also that Fed Chairman Powell stands ready to deliver another bout of easing later this month – The Powell Put. That’s the stock market we’re in – reacting to daily news on trade wars and looking to be bailed out.
Fundamentally should we be scared? Yes, be a little concerned.
Meanwhile, the short-end of the US Bond market tightened as expectations of further easing rose…. (At this point please start humming the underwater menace theme from Jaws, and imagine a large shadowy shark-like form is below the boat.)
I’ve spent most of my career in the fixed-income markets. What I see today scares the shit out of me.
We are looking at 2% yields on the 30-year US T-Bond. That’s the highest bond yield in the whole developed world sovereign bond market! And the market thinks it’s a bargain because US rates are inevitable going to zero and beyond! That is not good. It really is not good. It is not normal. It means something is very very wrong.
Yet investors can’t get enough of it… delicious, yummy sub zero percent yielding bonds… September was a record month for corporate new issuance – more than $300 bln of issuance. (When I started in the market back in the 1980s, a record month would be a couple of billion!) We’ve now got governments around the globe taking about fiscal reflation and borrowing more – why not? Yields are so low a few trillion more in debt can’t hurt… can it? Of course not.. fill yer boots.
As bond yields continue to fall, the investment banks are churning out new deals as fast as they can type out the term sheets. Its even more manic in High Yield. Investment banks make higher fees from junk issues – so guess what.. the market is flooding with paper. And investors are hoovering them up – they just love the yield (ie positive), the investment bank analysts are telling them to buy, and they figure that because there is a global recession coming and Central Banks will ease rates – then why not ride the next leg of the Great Bond Rally?
Whoa. Stop. Think. There is a little word…. Risk.
Remember Blain’s Market Mantra Number 1: “The Market has but one objective – the inflict the maximum amount of pain on the maximum number of participants.”
If there is a global recession, what happens to bonds in recession? Sovereign bonds and most investment grade bonds tighten. Tick. (Well, they would tighten if they weren’t stupidly tight already..) High Yield Issuers go bust. Big X. (Consider that Lesson 1 this morning. At this point you should be thinking about the need for a bigger boat…)
One of my European chums was amazed a BB junk French laundry firm he’s never heard of, Elis, was able to raise 5-year debt at 1% last week. This would be the same company no one had previously ever heard of that caused some eyebrow raising earlier this year when it launched a covenant-lite junk bond. This time around no one even blinked. The reality is issuers are getting deals done with less investor protections and lower yields than ever.
(It’s a curious physhological thing, but those of us of a certain market cohort are very aware the more complex you make a deal, the more you can weaken the protections, and the more likely it is investors will simply scan the docs with a once-over and accept worse terms.. People like to look clever and pretend they understand difficult stuff… I was a really good bond salesman in my day)
You can understand why corporate treasurers want to get their deals done now – what’s a bit more leverage when rates are so low? (“Wafer thin mint sir?”) Corporate funding teams are not stupid – they understand pre-funding next year’s redemptions now makes sense in case markets crater. I idly wonder if anyone buying these deals listened as S&P warned European junk default rates are likely to rise to 2.8% next year? Oh – you didn’t spot that news buried in the back pages…
Consider this as Lesson 2 – as junk issuers lever up on more and more debt, then what happens if they can’t refinance because the bottom of the market falls out? They go bust… This leads neatly to Lesson 3 – if interest rates were to rise then high yield issues are more likely to go bust.
This is really simple stuff:
A recession is bad for High Yield. Falling bond yields are bad for high yield because they look less and less attractive on a relative basis, and rising yields are equally bad. What’s to like about over-leveraged junk debt? In short – high yield is high risk. Understand that or get out the junk shop! Here endeth the easy part of today’s lesson.
And now I will argue that NIRP and ZIRP negative bond yields are also bad. They achieve nothing except to fool investors. Eventually the marks will realize they are being fooled and will walk away. As I was saying yesterday, you have the issue of rising amounts of “Idle Capital” – the smart guys that see the inherent dislocation and pointlessness of zero rates in the bond market. They see 10-years of monetary experimentation, QE, asset purchase programmes have achieved precisely zero in terms of growth or inflation. They increasingly see the “decay” of markets I reference in today’s opening quote. (It was said by Oswald Toynbee (whose grandson is a porridge reader). He was Maynard Keynes’ broker – I’ve attached his obituary; it’s definitely worth a read.)
The result is increasingly Idle Capital means junk bonds are top of the potential illiquidity list – less and less money willing to refinance at stupid levels. Meanwhile, what is that Idle Capital doing? Some of it is waiting for a crash, some of it is looking at remaining in Cash. But… maybe the place to look is the stock market where dividend yields look attractive relative to bonds.
Then you have to overlay the bond market with the global reality:
That a Trump vs China and/or Europe trade war is a reality
That an oil shock as Saudi implodes or goes to war is a reality
That a messy Brexit is a possibility
Etc etc etc..
I’m sure there are lots of reasons to go into the weekend happy about markets. I’m not that worried – I take the view the sun usually rises each morning, and things are never as bad as you think… but this is a curious modern age, and I don’t think the Planet Earth User Manual has a page detailing how to deal with an infestation of Trump, Boris, Xi et al…
Have fun… stock up the bunker… (Only kidding: these new Chinese missiles don’t miss)
“I Am With Mueller”: Newly Released Rosenstein Emails Reveal Crusade To Investigate Trump
“I am with Mueller. He shares my views. Duty Calls. Sometimes the moment chooses us.” –Rod Rosenstein, one day before Mueller was appointed as special counsel
New emails obtained through a Freedom of Information Act (FOIA) lawsuit reveal the details surrounding communications between Deputy Attorney General Rod Rosenstein and Robert Mueller in the days leading up to the former FBI Director’s appointment as special counsel in the Russia probe. Mueller would go on to assemble a team comprising “13 Angry Democrats” as Trump called them, due to their obvious animus towards the president.
According to the 145 pages of documents obtained by Judicial Watch, Rosenstein and Mueller were discussing just three days after President Trump fired former FBI Director James Comey, and ostenisbly for some time before that.
“The boss and his staff do not know about our discussions,” Rosenstein wrote Mueller on May 12, 2017 as the two tried to nail down a time for their next conversation.
Four days later on May 16- the day before Mueller’s appointment, Rosenstein told former Bush administration Deputy Attorney General and current Kirkland & Ellis Partne, Mark Filip “I am with Mueller. He shares my views. Duty Calls. Sometimes the moment chooses us.”
And on May 17 Rosenstein appointed former FBI Director Robert Mueller to investigate Russian meddling in the 2016 presidential election.
Also, during the same time period, between May 8 and May 17, Rosenstein met with then-acting FBI Director Andrew McCabe and other senior Justice Department FBI officials to discuss wearing a wire and invoking the 25th Amendment to remove President Trump. –Judicial Watch
Meanwhile, Rosenstein was in contact with 60 Minutes, The New York Times and the Washington Post during the same time period.
“In an email exchange dated May 2017, Rosenstein communicated with New York Times reporter Rebecca Ruiz to provide background for this article about himself. Ruiz emailed Rosenstein a draft of the article, and he responded with off-the-record comments and clarifications,” according to Judicial Watch.
In an email exchange on May 17, 2017, the day of Mueller’s appointment, Rosenstein exchanged emails with 60 Minutes producer Katherine Davis in which he answered off-the-record questions about Mueller’s scope of authority and chain of command:
Rosenstein: “Off the record: This special counsel is a DOJ employee. His status is similar to a US Attorney.”
Davis: “Good call on Mueller. Although I obviously thought you’d be great at leading the investigation too.”
On May 17, 2017, in an email exchange with Washington Post journalist Sari Horwitz and the subject line “Special Counsel” Rosenstein and Horwitz exchanged:
Rosenstein: “At some point, I owe you a long story. But this is not the right time for me to talk to anybody.”
Horwitz: “Now, I see why you couldn’t talk today! Obviously, we’re writing a big story about this. Is there any chance I could talk to you on background about your decision?” -JW
“These astonishing emails further confirm the corruption behind Rosenstein’s appointment of Robert Mueller,” said Judicial Watch President Tom Fitton. “The emails also show a shockingly cozy relationship between Mr. Rosenstein and anti-Trump media reporters.”
Apple Jumps On Nikkei Report Indicating A Boost In iPhone 11 Production
Around 1 am est., Nikkei broke several headlines detailing how Apple told suppliers to increase their production of the iPhone 11 by up to 10%, or up to 8 million units.
The news wasn’t directly released from Apple, but rather Nikkei cited unnamed sources:
APPLE INCREASES PRODUCTION OF IPHONE 11- NIKKEI CITING SOURCES
APPLE HAS TOLD SUPPLIERS TO INCREASE THEIR PRODUCTION OF ITS LATEST IPHONE 11 RANGE BY UP TO 10%, OR 8 MILLION UNITS – NIKKEI
The alleged ramp in production validates Apple CEO Tim Cook’s new plan to offer more affordable smartphones amid mounting macroeconomic headwinds in the global economy.
“This autumn is so far much busier than we expected,” one source with direct knowledge of the situation said. “Previously, Apple was quite conservative about placing orders,” which were less than for last year’s new iPhone. “After the increase, prepared production volume for the iPhone 11 series will be higher compared to last year,” one source told Nikkei.
Sources cited by Nikkei said the surge in iPhone orders is primarily due to increased consumer demand of the cheapest iPhone 11 model, while Apple has revised lower production rates for it’s more expensive, iPhone 11 Pro Max, which retails around $1,099.
Nikkei said Apple’s iPhone suppliers were cautious about Cook’s production increase of the cheaper model and reported that a higher level of orders wouldn’t be sustained.
“Demand is good for now. But we have to be careful not to be too optimistic,” an executive-level source said in the report. “I hope that this year’s peak season lasts longer than last year.”
As a result of the good news, but not yet confirmed by Cook, Apple component manufacturers’ shares jumped in Japan.
Japan’s Minebea Mitsumi rose 3%, Japan Display added 2%, while Murata Manufacturing and Alps Alpine also saw gains to end the week.
European chipmakers AMS, Infineon Technologies, STMicro, and Dialog Semiconductor, saw their shares increase between 2% and 3.5% on the news. Gains were widely faded by the 7 am est. hour.
Apple’s low-cost iPhone is a direct response to the imploding global smartphone market that is expected to contract for the third consecutive year, something that we mentioned last month.
Earlier this year, Cook finally acknowledged that Apple’s pricing of iPhones was a significant error that was slowing company sales, especially in emerging markets.
Earlier this week, Cook told the German newspaper Bild that the iPhone 11 launch had a “very strong start.”
On iPhone 11 launch day [Sept. 20], one social media star was able to walk in and out of an Apple store in Manhattan’s SoHo district in about under 5 minutes. So much for the “very strong start,” which several years ago, people were waiting hours for these phones.
Yasuo Nakane, head of global tech research at Mizuho Securities, told Nikkei that he revised up 2019 iPhone production to about 194 million units from 178 million. He said this year’s sales are far below the 208.8 million iPhones sold in 2018.
In past reports, we’ve shown Apple is losing its global dominance, being displaced by Chinese brands, like Huawei, Oppo, and Vivo. Apple suffered a 25% decline in iPhone shipments in 1H19, according to IDC.
While Apple has declined to comment on the unconfirmed report, its shares are up 1.55% around the 7:45 am est. This is nothing more than a classic stock market pump job by Cook, and we all know what could happen next.
Stocks & Dollar Spike On Mixed Payrolls Data, Bonds Undecided, Gold Down
Low unemployment (yay), slowing wage growth (boo), retail job losses continue (ugh)… sparked algos buying in stocks and the dollar and despite some vol in bonds, they are unchanged for now…
Futures ramped to overnight highs (beware the stop run and fade)
And the dollar spiked (and initial kneejerking lower)…
Source: Bloomberg
And while bond yields kneejerked higher, they quickly retraced to unch…
Source: Bloomberg
And gold erased yesterday’s PMI gains…
Finally, we note the market shifting hawkishly, now pricing in 1.4 rate cuts by year-end…
September Payrolls Miss: 136K Jobs Added As Wage Growth Crashes
It wasn’t quite as bad as the whisper number, which saw September payrolls dropping below 100K, but it wasn’t great either: moments ago the BLS reported that in September the US added 136K jobs, below the 145K expected, however the August number – as has become customary – was revised notably higher, from 130K to 168K.
Below the surface, there was some good news and some bad news. The good news is that the unemployment rate dropped again, sliding from 3.7% to 3.5%, below the expectation for an uunchanged print, and the lowest since 1969.
The bad, however, was that in a stark reversal to recent trends, the average hourly workweek missed badly, and was unchanged from August (when it rose 0.4% sequentially), missing expectations of a 0.2% increase. On a Y/Y basis, earning grew 2.9%, far below the 3.2% in August, and also below the 3.2% expected. All this happened as the average weekly hours worked remained unchanged at 34.4
Yes, it’s US payrolls day once again. And for once it’s an interesting payrolls day, because after a long, long time in which that benchmark series really didn’t seem to matter that much, today it really does. After all, markets are now frazzled by fear that what is obviously a synchronised global manufacturing downturn may be seeping into the services sector: yesterday’s final services PMI in the Eurozone was just 51.6, in the UK 49.5, and in the US either 50.9 (Markit) or 52.6 (ISM), the latter down from 56.4 and vs. 55 expected. Indeed, the US ISM survey saw the employment index slump to 50.4, the lowest in years.
As such, the last thing markets, central banks, or governments will want to see today is a weak US payrolls report confirming that the last man standing, and still global consumer of last resort for everyone except China, is about to slump. The consensus for today is 145K, which would actually be seen as fine against a normal backdrop considering how long in the tooth this expansion already is. The crazy thing is now that a mere 10-15K miss on that expectation, which is nothing more than a rounding error in the scale of the US labour market of 130m plus, could likely be enough to trigger either manic or manic-depressive swings in many markets. US 10-year yields are at 1.52% this morning, for example: want to bet where they will close if we get a weak payrolls print? Or a strong one?
And that craziness is against a global backdrop of a true Lollapalooza of meshugga. For example, US politics continues to reach new levels of ridiculousness when we are still 13 months away from the presidential election: save some crazy for the campaign trail, people! We have constant whistleblower leaks of phone calls Trump has made to major foreign leaders: great for transparency, if accurate, but how is international diplomacy going to be undertaken at a time when we have literal ticking time-bombs in Iran and North Korea, and major geopolitical flashpoints all over – carrier-pigeon?
President Trump is openly asking all and sundry to investigate rival Joe Biden and his son, even as he is threatened with impeachment for the very same thing; and most media continue to patiently explain to readers it is perfectly normal for the son of the US Vice-President, with no relevant experience, to get a USD50,000 month a job on the board of a Ukrainian gas company, or to fly with his father to China and weeks afterwards be involved in a USD1.5bn private equity fund backed by Chinese money.
Trump is also talking not just about Fake News, but about a ”coup” against him, and risks to social stability if he is toppled. Moreover, the White House will refuse to comply with anything related to impeachment proceedings until the House of Representatives holds a full vote approving it – which Democratic House leader Pelosi refuses to do. (Yes, constitutionally she doesn’t have to; but, the few times in US history this has been done a vote has been held as with no official vote Republicans in the House cannot subpoena witnesses and evidence.)
One thing markets should take away from this all is just how fantastically strong the USD is: if it can shrug off all of the above, and recent Repo madness, and the White House openly attacking the Federal Reserve for not cutting rates fast enough in a year it said it would be hiking, and trade wars….well, that’s really something. Imagine what will happen when the rest of the globe gets sucked into its own mess and the relative level of US meshugga looks more normal!
Speaking of which, in the UK the talk is still of “surrender” and “traitors” re: Brexit rather than a “coup”…for now. However, we find ourselves in the inverse of former PM May’s position: where she crafted a Brexit deal that was palatable to the EU but unpalatable to the British parliament, PM Johnson’s now might have a deal that parliament can swallow…but it is falling well short of the EU’s appetite. BoJo now has a week for a whirlwind tour round EU capitals to try to sell his marvellous magical medicine before we reach the next crunch point: does the UK extend for another few months and not leave on 31 October, or does BoJo pull a rabbit out of a hat, or go to jail, to prevent an extension and so trigger Hard Brexit? Let’s just say that the UK politics of this looks suspiciously like setting up the blame game for when things go wrong – and the EU can see right through that.
Also speaking on which, Hong Kong has decided that the best way to deal with its months-long crisis is to use emergency rule to ban wearing face masks. From today, it is reported that wearing a mask will prompt a fine of up to HKD25,000 or a one-year jail term. That’s in a global ‘flu capital where such masks are a medical necessity, and where protestors already face a 10-year sentence for rioting if they are caught when on the streets. Considered opinion locally, including from an anonymous police official, is that this step will not calm tensions, but will instead inflame them, and is likely to prove unenforceable to boot.
United States and indeed global economic data have been weak – at least that is the unabated message from the PMI data that were released this week on both manufacturing and services. At this stage everyone knows the survey data, or “soft” data, are weak. The important question now is whether that weakness will spill over into hard economic data that admittedly comes with a lag. Indeed, for the Fed to take a much more aggressive stance they will need to see the soft data weakness bleed into the hard data.
In this respect today, Friday, October 4th, is shaping up to be one of the most important market days of the year as the September US employment report gets released. The US employment report is about as hard as the data come.
In our view, employment is challenged here and the onus is on the labor stats to pull a rabbit out of the hat. We now have leading data from both the manufacturing sector as well as the services sector that show employment in a declining trend. On the manufacturing side, the most recent ISM data showed the employment component to be in contraction with a reading of 46.3 (sub 50 readings indicate contraction). The same is almost true of the ISM services PMI, which has the employment component hanging on for dear life at just 50.4. In any case, both services and manufacturing employment surveys have turned sharply south since earlier in the year. This puts a great deal of pressure on the hard data to to show some serious resilience. We will shortly see if it is up to the challenge.
Below we show YoY payroll employment growth and YoY aggregate weekly hours growth compared to both the ISM manufacturing and services employment indices.
Futures Fall As Traders Brace For Dismal Payrolls Report
Global stocks faded a modest early session rebound, US equity futures drifted lower, and safe haven assets rose ahead of a key jobs report as investors hoped this week’s dismal data would trigger more U.S. interest rate cuts as “bad news is great news” again. Trading volumes were deplorable after a bruising week for risk after a slew of week economic data that revealed a slowdown in U.S. manufacturing and services.
“(The) market has very quickly reversed to the ‘bad news is good news’ model and rallied on increased rate cut expectation,” said Marija Veitmane, multi-asset senior strategist at State Street Global Markets.
S&P futures were down 11 points at last check ahead of Friday’s September payrolls report (previewed here), reversing a pop higher triggered by a Nikkei report that Apple is raising iPhone 11 output by up to 10% and following a 0.80% increase in the S&P 500 on Wall Street overnight on hopes that future Fed rate cuts will support corporate profits.
For those pressed for time, here is a rundown of key events in the overnight session:
European equities are indecisive and overall little changed ahead of US jobs report
White House Trade Adviser Navarro reiterated that there will be no small deal with China
Beijing is in no hurry to forge a deal, and cites the one secured between US and Japan as a reason for not rushing., SCMP
Fed’s Clarida was optimistic on the economy, noted Fed is not on a pre-set course and a standing repo facility will be discussed in future meetings
USD is marginally softer thus far, fixed is firmer; note, RBI cut by 25bp as expected
Looking ahead highlights include US NFP and Trade, Baker Hughes, Canadian Trade, ECB’s de Guindos, Fed’s Powell, Rosengren, Bostic, Kashkari, Brainard, Quarles
European markets ground sideways ahead of today’s U.S. payrolls number. European equities pared back initial gains to trade flat, with autos, miners and energy names weighing; the Stoxx Europe 600 Index gave up its early advance as automakers and banks weighed down the gauge. The Stoxx 600 Technology Index topped the wider benchmark in Friday’s early trading with a gain of as much as 1%, following a report that Apple has told suppliers to increase production of its latest iPhone 11 range by as much as 10%. Semi names such as AMS +3.3%, Aixtron +3.2%, Dialog 2.6%, IQE +2.6%, STMicro +2.5%, Besi +2.3%, and ASML +0.9% were all higher in early trading. Oddo said the Nikkei Asian Review report confirmed that demand for the new iPhone 11 range exceeds expectations, which have been more cautious than last year. In the UK, the FTSE 100 outperformed. G-10 FX trades in a tight range.
Earlier in the session, Asian stocks fluctuated, heading for a weekly drop, as investors looked toward the U.S. non-farm payrolls report due Friday and Chinese Vice Premier Liu He’s Washington trip next week. Markets in the region were mixed, with Australia advancing and Hong Kong leading declines. China’s onshore market remains closed for National Day holidays. The Topix gained 0.3%, buoyed by Central Japan Railway and Sony. Bank of Japan Deputy Governor Masazumi Wakatabe said policy makers don’t want to continue low or negative interest rates for a long time. Hong Kong’s Hang Seng Index declined 1.1%, with real estate developer Sun Hung Kai Properties leading losses. The city invoked colonial-era emergency powers for the first time in more than half a century to ban face masks for protesters. Real estate stocks in the region underperformed as Hong Kong’s property market continues to bear the brunt of local riots, with reports stating that homeowners are slashing house prices by over 20% amid reluctant buyers and banks reducing property valuations due to the increasing violence. As a reminder, Mainland China remained closed due to its National Week holiday. Elsewhere, the Sensex dropped 0.7%, dragged by large lenders, after India’s central bank cut rates by 25 basis points and lowered its full-year growth forecast.
The MSCI World index, which was slightly lower on the session, was on track for a 1.8% drop on the week, its worst in two months, hurt by a surge in weak global data, political uncertainty in the United States and Hong Kong, geopolitical tensions in the Middle East and Brexit.
In other key news, a late Thursday report by CNN said that President Trump told Chinese President Xi that he will stay quiet on HK amid trade talks. At roughly the same time, White House Trade Adviser Navarro reiterated that there will be no small deal with China and added “we will get a great deal with China or no deal”. In response, the SCMP published an Op-Ed which stated, “Beijing is in no hurry to forge a deal and the one struck between the US and Japan on September 25 is good reason for not rushing”. The article noted that there was no agreement for the immediate removal of US penalties on Japanese vehicles and parts, but the accord referred to a levy elimination at a future date without specifying a time frame.
While talks between Beijing and Washington resume next week, aimed at agreeing a truce over the protracted trade spat between the world’s two largest economies, hopes of a definitive agreement are pretty low. Global equities could fall as much as 15-20% if negotiations break down and Trump follows through with his threat of car imports tariffs, UBS global chief investment officer Mark Haefele warned on Friday. The Swiss bank reckons there’s a 50% probability that additional duties will be announced by the year-end, potentially pushing global growth down to 3% next year, the slowest pace since the global financial crisis.
“Without a resolution to the U.S.-China trade dispute, we see limited upside for stocks in the near-term, and given the risks of further escalation we hold a modest tactical underweight on equities,” he said.
But first there is the main event of the day: nerves ahead of today’s jobs number – which may miss bigly based on ISM surveys…
… sent investors into safe haven asset such as government bonds and gold. The report is expected to show the world’s top economy added 145,000 new jobs in September, more than an increase of 130,000 in the previous month. If the soft U.S. ISM data is validated by Friday’s payrolls report, then the economic slowdown at a minimum will have “taken all of the sting out of the USD top side,” Deutsche Bank’s Alan Ruskin said. Others echoed this assessment: while it’s “too early” to call for the dollar to turn down on a broad basis, the yen remains the “main opportunity” among G-10 currencies, said Zach Pandl, co-head of global FX and emerging-market strategy at Goldman Sachs Group Inc.
In rates, Bunds and Treasury futures traded slightly higher around Thursday’s best levels with the long-end outperforming, flattening the curve mildly ahead of the payrolls report. Yields lower by ~1bp in 7- to 30-year sectors, 10-year by 0.7bp at 1.527%; 2s10s flatter by ~1bp, 5s30s by about 0.5bp, paring weekly steepening moves spurred by bigger-than-expected declines in ISM manufacturing and services gauges. Gilts outperformed after EU gave Boris Johnson one week to revise his proposed Brexit deal.
In FX, the dollar index dropped after hitting a 2-1/2-year high this week. It was down 0.3% on the week. Traders now see a 85.2% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday, according to CME Group’s FedWatch tool. The Fed has already cut rates twice this year as policymakers try to limit the damage caused by the bruising Sino-U.S. trade war. The dollar edged down to 106.81 yen, close to a one-month low of 106.48 yen reached on Thursday. The euro was a shade higher at $1.0974, near a one-week high. NZD and AUD outperformed at the margin, while INR was slightly softer after the RBI matched market consensus for a 25bp rate cut.
In commodities, crude futures drift higher in choppy trade. Base metals are mixed with nickel +0.8% as inventories drop, copper down 0.5%, while spot gold was up 0.3%, on course for a 0.75% weekly gain.
Today’s calendar sees economic data including September payrolls and the US trade balance.
Market Snapshot
S&P 500 futures down 0.2% to 2,907.00
STOXX Europe 600 up 0.2% to 378.29
MXAP up 0.08% to 155.56
MXAPJ unchanged at 497.19
Nikkei up 0.3% to 21,410.20
Topix up 0.3% to 1,572.90
Hang Seng Index down 1.1% to 25,821.03
Shanghai Composite down 0.9% to 2,905.19
Sensex down 0.7% to 37,824.66
Australia S&P/ASX 200 up 0.4% to 6,517.08
Kospi down 0.6% to 2,020.69
German 10Y yield fell 0.7 bps to -0.597%
Euro up 0.08% to $1.0974
Brent Futures up 0.7% to $58.09/bbl
Italian 10Y yield fell 7.3 bps to 0.488%
Spanish 10Y yield fell 0.8 bps to 0.123%
Brent Futures up 0.6% to $58.08/bbl
Gold spot up 0.2% to $1,508.61
U.S. Dollar Index down 0.01% to 98.86
Top Overnight News
U.K. PM Johnson and the EU have given themselves a week to agree on a Brexit plan. Otherwise, Britain will be heading for either a no-deal exit or another postponement of its departure. While support is building for Johnson’s proposals at home, the EU’s chief negotiator Michel Barnier said the plans for the Irish border issue falls short of his conditions for a deal
The world’s biggest government-debt markets are sending a clear signal that global economic growth is stalling and inflation expectations are fading fast. That sobering message is evident in tumbling yields on Treasuries and German bunds, in bond-market inflation metrics projecting further declines in price pressures and in a gauge that shows investors see no need for extra compensation to load up on long-term debt
Two top American diplomats tried to strike a deal on behalf of President Trump for Ukraine’s leader to investigate discredited allegations of wrongdoing by Joe Biden and his son in return for improving relations with the U.S., according to documents released by House Democrats late Thursday
Hong Kong invoked emergency rule for the first time in a half a century to ban face masks on protesters, Now TV reported, as authorities look to quell months of unrest
WeWork’s leaders told staff that job cuts are coming as soon as this month. In a meeting with employees Thursday, company bosses said that cost- cutting efforts would include layoffs, according to attendees. The cuts will be handled as “humanely” as possible, one executive said, according to the people, who asked not to be identified
Asian equities traded with no firm direction as the region derived little impetus from the upbeat performance on Wall Street ahead of the US labour market report, where stocks rose amid increased expectations for further Fed stimulus after this week’s ISM metrics declined to multi-year lows. ASX 200 (+0.4%) treaded water for most of the session and was little swayed by reports that Commonwealth Bank of Australia’s life insurance arm has been charged with 87 counts of hawking life insurance products. Meanwhile, Nikkei 225 (Unch) remained within a tight range amid the cautiousness in the market and an uneventful domestic currency. Elsewhere, Hang Seng (-0.4%) was modestly softer ahead of an emergency meeting held by Chief Executive Lam which is anticipated to be on emergency regulation to ban protesters’ face masks, according to sources, although the enforcement of this law is still in question. Further, real estate stocks in the region underperformed as Hong Kong’s property market continues to bear the brunt of local riots, with reports stating that homeowners are slashing house prices by over 20% amid reluctant buyers and banks reducing property valuations due to the increasing violence. As a reminder, Mainland China remained closed due to its National Week holiday.
Top Asian News
India Cuts Rates Fifth Time Amid Economic Slowdown, Banking Woes
Fighting Against Bank of Japan May Not Be Crazy After All
There’s a New Hedge Fund for Badly Governed Companies in Japan
How Far Hong Kong’s Emergency Law Can Go (Online Too): QuickTake
Major European Bourses (Euro Stoxx 50 -0.1%) are mixed and little changed overall, in relatively rangebound trade ahead of pivotal US employment data. However, Indices are off of yesterday’s post weak US ISM Non-manufacturing data lows, managing to track the bounce back seen on Wall Street. JPM argue that the rise off lows seen in US indices was fairly unimpressive due to its low volume, and suggest the move was likely an oversold bounce, since prior to the data the SPX was already 4.5% lower on the week. Nonetheless, the bank acknowledges a number of other factors could have been lending support: Firstly, the bank suggested that investors may have returned to the mentality of “bad data is good data” again in the US, since it increases the likelihood of more aggressive Fed easing. Indeed, the odds of a Fed rate cut this month has now increased to near 100% (up from 50/50 at the start of the week). Secondly, the base case for most investors is for some kind of trade truce between the US and China this month, with such trade hopes helping the market rebound from similar levels in the month of September. Thirdly, poor manufacturing PMI data earlier in the week had already set the bar very low, and the non-manufacturing data was not a disaster in that it is still above the expansionary/contractionary 50 mark. Finally, JPM say that new WTO permitted US tariffs on EU imports weren’t as bad as feared, and any EU response is unlikely before the beginning of 2020 (although the US decision on EU auto tariffs looms in November). Sector are mostly in the green; Health Care (+0.6%) is the outperformer while Materials (-0.4%), Consumer Discretionary (-0.4%) and Financials (-0.6%) (on lower yields) lag. Notable individual movers include; STMelectronics (+2.0%) and other Apple suppliers were buoyed by the news that the iPhone maker is to increase production of its iPhone 11 by 10%. London Stock Exchange (+2.1%) caught a bid on premarket reports that investors in the Co. will push for the Hong Kong Stock exchange to up its takeover offer by 20%, including more cash. UK Insurance names, including Admiral Group (+0.8%) and Direct Line (-2.6%), are under pressure on the news that the FCA may ban some pricing practices used by insurers, having determined that competition is not working effectively in the market. BP (+0.8%) outperformed other energy names on the news that its CEO Dudley had resigned. Finally, Deutsche Lufthansa (-3.6%) shares were weighed by news that the German Government reportedly intents to increase taxes on flight tickets.
Top European News
U.K. MP Rory Stewart Resigns From the Conservative Party
Italy 2Q Year-to-Date Budget Deficit at 4.0% of GDP
Europe Airlines Winter Capacity Outlook ‘Constructive,’ RBC Says
Swedish Nationalists Now Even With Social Democrats in Poll
In FX, the Dollar is treading gingerly into the final big US release of the week having been wrong-footed by both ISM surveys and buffeted by a dire Chicago PMI along the way. Indeed, having kicked off the new month/quarter with a fresh ytd high (99.667) the DXY is struggling to contain losses below the 99.000 level and only just off a circa 98.630 base amidst further bull re-flattening across the US Treasury yield curve and lofty October FOMC easing expectations (80%+ probability for another 25 bp cut). In terms of the key BLS metrics, consensus for headline payrolls is 145k, with the jobless rate seen at 3.7% and average earnings forecast to hold at 3.2% y/y, but after an ADP miss and other soft employment proxies the NFP skew seems to be on the downside. Hence, nearest technical supports for the index could be vulnerable and for reference 98.730 represents a Fib retracement ahead of the 30 DMA at 98.616.
NZD/AUD – The Kiwi is back at the head of the G10 pack having relinquished pole position to the Pound late yesterday, with Nzd/Usd climbing further above 0.6300 and Aud/Nzd nudging further below 1.0700 even though the Aussie is also benefiting from its US counterpart’s demise and consolidating around 0.6750.
CHF – The Franc has pared some of its recent heavy losses on a multiple of well known/documented bearish factors, and reports that the EU may be set to remove Switzerland from its tax haven grey list could well be aiding the recovery. Usd/Chf is back below parity and Eur/Chf has shied away from 1.1000, but this may just be consolidation and short covering given the scale of depreciation of late.
EUR/JPY/CAD/GBP – All firmer against the Buck, but relatively rangebound and off Thursday’s post-US ISM highs awaiting the aforementioned key US labour report. The single currency is confined between 1.0984-64 and decent option expiries from 1.1000-20 to 1.0925 (just over 1 bn either side), the Yen is meandering in an equally tight band through 107.00, Loonie within 1.3340-20 parameters ahead of Canadian trade data and Sterling trades tentatively on the 1.2300 handle eyeing Brexit-related news in the pre-NFP amble.
EM – The Rupee is just about on an even keel with the Greenback in wake of the latest RBI rate cut that was in line with median expectations, at -25 bp, but not as big as some were anticipating or hoping for. Hence, Usd/Inr is off lows and skirting 71.1000.
Riksbank’s Jansson says they have seen a relatively rapid decline in the economic situation. Recent developments have underscored his view that it would not be a good idea to lift rates at the end of 2019 or start of 2020. (Newswires)
RBI cut rates by 25bp as expected to 5.15% (Prev. 5.40%). Decision was unanimous, retained accomodatie stance, note the conituned slowdown ‘warrants intensified efforts’ to restor India’s growth momentum; negative output gap has widened further.
The crude complex is edging higher, seemingly tracking the bounce in US/European equities, amid a lack of fresh fundamental drivers. WTI and Brent Nov’ 19 futures have built on overnight gains, the former now probing resistance at the USD 52.90/bbl region (yesterday’s high) ahead of the USD 53.00/bbl mark, while the latter has already cruised past USD 58.00/bbl and eyes resistance at USD 58.40/bbl (Tuesday’s low). Brent seemed unresponsive to news of a halt in production in the Buzzard Oil field in the North Sea (capacity of 180k BPD), but analysts note such news has been market moving in the past. The pace of new Middle Eastern geopolitical developments, particularly on the US/Saudi/Iran front, appears to have slowed for the time being, although the head of the UN’s Nuclear Watchdog, the IAEA, said that Iran has improved their cooperation with the organisation, but issues are not completely addressed. Elsewhere, the desk is monitoring ongoing violent protests in Iraq (locals are protesting against government corruption, poor public services etc.); for now, protests don’t seem to present any risk to the country’s oil industry/exports. Meanwhile, the news that US Energy Secretary Perry is expected to resign in November, and be replaced by Deputy Energy Secretary Brouillette, has done little to move the dial. Gold is marginally higher but appears rangebound ahead of today’s NFP print, in cautious trade following yesterday’s choppy post ISM data action which saw the precious metal spike from the low USD 1500s/oz to the mid USD 1520s/oz before retracing. Technicians will be eyeing resistance at yesterday’s USD 1525.50/oz high and support at the USD 1511/oz (yesterday’s post data low and Wednesday’s high) and USD 1502/oz marks (yesterday’s low). Copper prices are lower, as growth concerns linger in wake of this week’s slate of poor US and European PMI readings, albeit copper prices are off monthly lows. Potentially lending to underperformance in the red metal are reports noting that Antofagasta is seeking negotiations with workers at its Chilean Antucoya mine in an attempt to stave off a strike, albeit union leaders said there had been little progress
US Event Calendar
8:30am: Average Hourly Earnings MoM, est. 0.2%, prior 0.4%
8:30am: Change in Nonfarm Payrolls, est. 145,000, prior 130,000
8:30am: Change in Private Payrolls, est. 130,000, prior 96,000
8:30am: Change in Manufact. Payrolls, est. 3,000, prior 3,000
8:30am: Unemployment Rate, est. 3.7%, prior 3.7%
8:30am: Two-Month Payroll Net Revision
8:30am: Average Hourly Earnings YoY, est. 3.2%, prior 3.2%
8:30am: Average Weekly Hours All Employees, est. 34.4, prior 34.4
8:30am: Labor Force Participation Rate, est. 63.2%, prior 63.2%
8:30am: Underemployment Rate, prior 7.2%
8:30am: Trade Balance, est. $54.5b deficit, prior $54.0b deficit
Central Bank Speakers
8:30am: Fed’s Rosengren Speaks at Boston Fed Conference
10:25am: Fed’s Bostic Speaks at Tulane University
2pm: Powell Makes Opening Remarks at Fed Listens Event
DB’s Jim Reid concludes the overnight wrap
After a testing week, how am I going to relax this weekend? Now my daughter is in the school system I’m forced to go to my first big school event – a family fun run. For avoidance of doubt I won’t be running or having fun. Here’s hoping the twins run in the same direction.
It hasn’t been much of a fun run for markets this week and today we welcome in another payrolls Friday. After the two big ISM misses this week including yesterday’s services miss – which we’ll come to shortly – arguably this has become one of the most anticipated employment reports for a long time.The market has swiftly repriced to 22bps of cuts for October’s Fed meeting versus 10bps this time last week. So we haven’t quite got a full cut priced in but clearly we’ve seen a big step change in expectations this week given the data and even an in-line payrolls reading today shouldn’t do much to change the narrative. The consensus for today is for a 145k payrolls print which follows 130k in August with the range amongst the survey participants on Bloomberg anywhere from 85k to 185k.
Our economists are below market at 125k however they note that this could again be boosted by Census workers, which is why it will be critical for market participants to focus on private payrolls (100k forecast vs. 130k consensus and 96k previously). A payroll print in line with our colleagues’ forecast should have the effect of raising the unemployment rate a tenth to 3.8%. Note that similar to August, the consensus forecast for private payrolls has missed the initial print in four out of the last five Septembers by an average of 44k. The median miss during this period has been an even larger 64k. Indeed, if our team’s below consensus forecast is realised, the Fed’s characterisation of the labour market as “strong” could be questioned. As far as the rest of the report is concerned, earnings are expected to rise +0.3% mom and participation rate to hold steady at 63.2%.
So the tee up for today’s data came in the form of a much weaker than expected ISM non-manufacturing (52.6 vs. 55.0 expected). That’s the lowest level and biggest miss since August 2016. Apart from this one low reading in 2016, you’d have to go back to 2012 to get a lower number. However it was the employment component that most were focusing on and like the equivalent sub component of the manufacturing data earlier this week, it didn’t make for great reading after dropping 2.7pts to 50.4 and the lowest since February 2014. This has historically been a leading indicator for private payrolls so points at some real downside risk to payrolls over the coming months even if it doesn’t show up today.
The immediate reaction in markets to the data was a big rally across rates. Indeed 2y and 10y yields rallied the best part of 10bps and 7bps immediately and eventually closed last night near the lows at -9.0bps and -6.5bps respectively. The rally at the short end did mean the 2s10s curve steepened however and at 14.4bps is now at the steepest since early August. It was a similar story across other bond markets where in Europe 10y Bunds traded down to -0.590% (-4.3bps). Similarly Gold (+0.43%) turned in a third consecutive positive session.
In contrast to bonds, equities experienced more intraday volatility. Most markets promptly sold off as soon as the data was released, with S&P 500 down as much as -1.11% at the lows, however it clawed back to end up an impressive +0.81%.There were two, now-familiar catalysts driving the rebound: positive trade rhetoric and dovish Fed expectations. On the trade front, President Trump spoke optimistically about next week’s planned meeting between his team and Chinese Vice Premier Liu He. The NASDAQ and Philly semiconductor indexes were down a similar amount as the S&P 500 at the lows (-1.09% and -1.12% respectively), but they rebounded even more strongly to end +1.12% and +1.71%, consistent with their outsized trade exposure. Meanwhile, financials (+0.16%) lagged significantly as bond yields dropped and expectations for a near-term Fed rate cut solidified. The VIX traded at an intraday high of 21.44 but ultimately settled down to close back at 19.1, while in Europe the STOXX 600 closed only -0.02% lower. Meanwhile US HY credit spreads were +12bps wider and Oil fell -0.61%. That means oil is now down for 8 sessions in a row – the longest run since last November – and amazingly is trading $11 lower than the post drone strike intraday highs last month and -4.61% below where we were just before the attack.
This morning in Asia markets are largely trading flattish to down with the Nikkei (+0.03%) and Kospi (+0.02%) broadly unchanged while the Hang Seng (-0.54%) is lower. Chinese markets remain closed for their week long holiday. Elsewhere, futures on the S&P 500 are down -0.11% and yields on 10yr JGBs are down -1.3bps to -0.215%.
In other overnight news, the White House trade adviser Peter Navarro, a China hawk, reiterated in an interview with the Fox Business Network overnight that the US will get a great deal with China on trade or there will be no deal. Earlier in the week, Navarro had also said that the unrest in Hong Kong provides context for trade talks. If Hong Kong is brought up as part of trade discussions though then this is likely to limit the possibility of reaching a deal. Elsewhere, Hong Kong is expected to ban face masks for protesters today in a bid to quell months of violent unrest, invoking emergency rule for the first time since the city came under Chinese control in 1997. The move to invoke colonial-era emergency powers — last used more than 50 years ago — is likely to trigger intense clashes this weekend, with protesters already calling for mass demonstrations to oppose the law (per Bloomberg).
Before we get to the weekend, Fed Chair Powell is due to speak at 7pm BST tonight at a Fed Listens Event where he is scheduled to make opening remarks. Given the data this week expect there to be plenty of focus on his remarks. Ahead of that Vice Chair Clarida spoke last night and the most important comments from him came on the balance sheet as he said that “We indicated in July that at some point after a time that we’d begin to grow our balance sheet again and Chair Powell indicated that is a topic we will be discussing in our October meeting, So we’ll have something for you after our October meeting on that.” On the economy his comments were a bit hawkish as he said that “The economy is in a good place. The consumer is in good shape, inflation is stable.” So non-committal towards a rate cut at the October meeting despite the recent barrage of weak economic data.
Back to yesterday and whilst not as market-moving as the ISM report, it’s worth noting that the final European PMIs were also weak, with the euro area services index revised down -0.4pts to 51.6, taking the composite index to 50.1. That’s the lowest reading since June 2013. On a country level, Italy was the only outperformer, with the services PMI at 51.4 compared to consensus for 50.5. Other than that, it was uniformly negative, with Spain’s reading at 53.3 compared to expectations for 53.9, and with France and Germany’s services indexes revised down -0.5pts and -1.1pts to 51.1 and 51.4. That takes Germany’s composite PMI to 48.5, the first time that Europe’s largest economy has had the lowest composite print among the big-four European countries since the early 2000s. That fairly dire data has again focused attention on the outlook for fiscal support. Mark Wall published a new note yesterday examining the scope for fiscal easing (link here ). He thinks the data would need to deteriorate further before we get meaningful easing, but if and when we do get fiscal support, it could equal around one percent of euro area GDP.
On the Brexit front, the only noteworthy news yesterday was a series of comments from the Irish Deputy Prime Minister Simon Coveney, who said that “if that (the UK’s latest plan) is the final proposal, there will be no deal.” However, he did leave the door open to further negotiations, rather than rejecting the process completely, so that was a positive and it does keep the path open towards a deal. From the UK side, the current plan does now command support from the pro-Brexit ERG, Northern Ireland’s DUP, and some labour MPs, raising the odds that it could survive a parliamentary vote if that ends up occurring. The pound ultimately gained +0.30%.
Finally to the day ahead where the obvious focal point will be this afternoon’s US September employment report. Away from that it’s very quiet for other data with only the September construction PMI due in Germany and September new car registrations due in the UK. Next in line at the Fed are Rosengren and Bostic before we get the aforementioned Powell opening remarks at an event this evening. The ECB’s Guindos is also due to speak today.
